Stocks rally as Trump says US, China have a deal

By Vildana Hajric and Sarah Ponczek

October 12, 2019 — 8.18am

Stocks rallied as President Donald Trump said the US and China had reached a "phase one deal" to broker a truce in the trade war. Treasuries tumbled with the US dollar, while the British pound surged on optimism for a Brexit agreement.

Wall Street's S&P 500 index ended the day up a bit more than 1 per cent, but off its highs of the day as investors looked toward what comes next. The hope is that the accord and suspension of new tariffs will lay the groundwork for a broader deal that Trump and China's leader Xi Jinping could sign later this year. The Dow Jones Industrial Average rose 1.2 per cent and the Nasdaq Composite added 1.3 per cent.

Apple, which sells millions of iPhones in China, rose to an all-time high. The Stoxx Europe 600 index jumped the most since January.

Traders on the floor of the New York Stock Exchange. Stocks have surged on the news of the partial trade deal.Credit:Michael Nagle

Trump said the United States and China had come to a substantial phase-1 trade deal, reaching agreement on intellectual property, financial services and big agricultural purchases. Speaking to reporters after talks with Chinese Vice Premier Liu He, he said the two countries were close to ending their trade war.

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Crude oil prices surged following an explosion on an Iranian tanker and Pentagon plans to ramp up the deployment of US forces to Saudi Arabia. Gilts tumbled and the British pound posted the biggest two-day gain in a decade as the EU's chief negotiator recommended detailed talks with the UK can begin in earnest.

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Investors embraced the progress on trade talks after conflicting headlines roiled markets this week, even if the accord falls short of a comprehensive agreement that would put an end to the trade war. Reports of a potential breakthrough on Brexit have also gone some way toward removing a persistent source of worry for markets.

"We could break through all-time highs if investors really perceive peace to this latest round," said Diane Jaffee, senior portfolio manager at TCW, which oversees $US200 billion ($294 million). "Even though the market is rising today, there's still a lot of skepticism embedded here. A lot, a lot, a lot."

Elsewhere, equities rallied throughout Asia, with shares in Hong Kong getting an extra lift as protesters discussed scaling back vandalism ahead of demonstrations this weekend.

Here are the main moves in markets:

Stocks

The S&P 500 index added 1.1 per cent at the close of trading in New York.

The Stoxx Europe 600 index surged 2.3 per cent.

The MSCI Emerging Market index climbed 1.8 per cent.

The Shanghai Composite index climbed 0.9 per cent.

Currencies

The Bloomberg Dollar Spot index dropped 0.5 per cent to a two-month low.

The euro increased 0.4 per cent to $US1.1046.

The British pound jumped 1.8 per cent to $US1.2667.

The offshore yuan climbed 0.4 per cent to 7.0736 per US dollar.

The Aussie dollar jumped 0.5 per cent to 67.95 US cents.

Bonds

The yield on 10-year Treasuries gained nine basis points to 1.75 per cent.

Germany's 10-year yield climbed three basis points to -0.45 per cent.

Britain's 10-year yield jumped 12 basis points to 0.70 per cent.

Commodities

West Texas Intermediate crude gained 2.3 per cent to $US54.80 a barrel.